Senate Committee Eyes Legislation Regulating Nonprofits

Nonprofit professionals packed a Senate Finance Committee conference room and even spilled into an overflow area this week for a hearing on charitable giving that likely will result in at least one bill to further regulate nonprofits.

“It's clear that we need to look at more general reforms to address recurrent problems in the nonprofit sector,” committee chairman Charles R. Grassley, R-IA, said in his opening statement.

Issues discussed at the hearing included illegal tax shelters, overcompensation of officials and accountability. In conjunction with the committee's ranking Democrat, Max S. Baucus, D-MT, Grassley drafted a list of possible legislative reforms to further govern charities and prevent abuses in the sector.

Some reforms proposed were five-year tax-exempt status reviews by the IRS; more detailed financial disclosure forms requiring the chief officer's signature and increased public access to financial information about the charity; and loss of deductible-donation status for a year for charities found to be accommodating tax shelters.

The senators said they hope to introduce legislation addressing at least some of these issues this fall.

Though none of the reforms are specific to direct marketing solicitations, that does not mean they won't affect fundraising, said Senny Boone, executive director of the Direct Marketing Association Nonprofit Federation, who attended the hearing.

“Anything that affects our members affects their ability to do fundraising in some way,” she said.

More legislation could mean hiring lawyers to ensure compliance or simply more time-consuming paperwork, which take limited resources away from fundraising efforts, said Boone, who added that the few bad actors in the sector prompt the increased legislative burdens for the charities that practice ethical fundraising.

“The DMANF is concerned that certain legislative proposals might be over-broad and carry with them the unintended consequences of significantly hurting good nonprofits in the process of trying to achieve more noble goals,” she said.

Still, Boone said the federation supports efforts to address abuses in the nonprofit sector.

A recent study suggests that U.S. charitable donations were up last year. According to the Giving USA 2004 study, donations by individuals, estates, foundations and corporations rose 2.8 percent in 2003 to $240.72 billion from $234.09 billion in 2002.

The largest portion of the charitable gifts in 2003, 74.5 percent or $179.36 billion, came from individual donors, which is up 2.5 percent over the previous year.

The annual study is an initiative of the Trust for Philanthropy of the American Association of Fundraising Counsel. It is researched and written by the Center on Philanthropy at Indiana University.

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